Lending money, that is, granting credit and borrowing money dates back many hundreds if not thousands of years. Throughout the history of lending, there have been many lessons learned that have been passed on in the way of laws that serve to protect the parties involved in credit transactions. Many laws are in effect to protect the borrower and to establish transactional standards and requirements. The Federal government, as well as the individual States, has enacted laws and regulations that impose requirements on companies in the business of originating and closing loans. The Federal government and many States also have government agencies to enforce the compliance of these laws. These laws provide guidance and requirements for businesses acting as lenders within the various jurisdictions involved.
Inclusive in these laws are clearly defined requirements for a consistent, complete and timely disclosure of transactional details. The requirements include but are not limited to costs and fees, the parties involved and their relationships, the cost of credit using standardized calculations, limits and restrictions on repayment details, limits and restriction on penalties along with many requirements.
The lending requirements are varied and complex. So complex that the only method that has been used to verify a business's compliance with the requirements is a tedious manual operation involving a person looking through all of the data in a loan file and trying to find and identify any violations. Because of the large amount of time it takes to review a loan for compliance, not all loans are reviewed. Usually loan review is performed only on a statistical sampling of the loans. Not only is this process subject to the hit or miss proposition of sampling, it is also subject to varying degrees of individual understanding biases in interpretation. Because the requirements are complex and interrelated, errors in the audit process can occur. In summary, the current process is inefficient, time consuming, subject to errors, non-standardized and also subject to the problems of small sampling.